OGC Opinion No. 08-07-19
The Office of General Counsel issued the following opinion on July 25, 2008, representing the position of the New York State Insurance Department.
RE: Third Party Administrator
Question Presented:
Would the services of ABC Administrators (ABC), as described below, require it to be licensed as an independent adjuster or a utilization review agent?
Conclusion:
Based upon the information that the inquirer furnished to the Department, ABC would have to be licensed as an independent adjuster, as would any of its employees who investigate and adjust claims. ABC also would be regulated as a utilization review agent.
Facts:
The inquirer reports that ABC is a third party administrator (TPA) with offices in Illinois that pays claims for self-funded and fully insured health plans in New York. The inquirer further reports as follows:
Our examiners apply the benefits outlined in the groups [sic] summary plan description. They do not make decisions beyond what is outlined in the plan. The payment amount is determined by the providers [sic] contract with the PPO or contract (network providers). Non-network providers are limited to reasonable and customary based on the MDR Reasonable and Customary tables. The level or percentile of the reasonable and customary is defined in the groups [sic] summary plan document. Any benefit or payment decision outside the guidelines provided by the summary plan description must be approved by the client.
To clarify the above, the inquirer states that:
The examiners follow the guidelines outlined in the summary plan document. This includes whether services are covered or not, limitations to benefits such as dollar limit or visit limits, etc. The guidelines are set by the employer group, so that would mean the examiners are simply following procedure set by the employer group and are not making any independent decisions.
The summary plan document to which the inquirer refers is the summary given to persons covered under the self-funded and fully insured health plans.
The inquirer also reports that ABC’s claims processing systems are coded to identify claims that may be cosmetic, experimental or investigational. If a claim is so identified, it is sent to ABC’s Medical Affairs Department (Medical Affairs) for investigation. Medical Affairs consults a number of sources that publish clinical guidelines and other medical reference materials. If Medical Affairs determines that the medical service may be cosmetic, experimental or investigational, ABC refers the claim to a utilization review company for a final determination. If the utilization review company determines that a claim is cosmetic, experimental or investigational, ABC sends a letter of notification of an adverse benefit determination, which includes the plan language, criteria and recommendations of the physician reviewer relied upon to make the adverse benefit determination. Medical Affairs handles appeals for the insurer or self-insured plan in a similar manner, such that its determination is informed by whether a claim is cosmetic, experimental or investigational.
The inquirer has not indicated whether the utilization review companies used by ABC are registered as utilization review agents in New York in accordance with Article 49 of the New York Insurance Law and Article 49 of the New York Public Health Law.
Analysis:
Although the Insurance Law does not require licensing of TPAs as such, if the entity performs a function that requires a separate license, then the TPA must be so licensed. See Opinion of Office of General Counsel No. 07-07-23 (July 25, 2007). The most common function that might require an insurance license is that of adjusting claims.
An entity that adjusts claims for an insurer, including an insurer that is exempt from licensure (such as a self-funded welfare benefit plan under the federal Employee Retirement Income Security Act) is considered an independent adjuster. See Opinion of Office of General Counsel No. 07-07-23 (July 25, 2007). Insurance Law §2101(g) (1) defines the term “independent adjuster” as follows:
The term “independent adjuster” means any person, firm, association or corporation who, or which, for money, commission or any other thing of value, acts in this state on behalf of an insurer in the work of investigating and adjusting claims arising under insurance contracts issued by such insurer and who performs such duties required by such an insurer as are incidental to such claims and also includes any person who for compensation or anything of value investigates and adjusts claims on behalf of any independent adjuster . . . .
A third party that exercises any discretion on behalf of an insurer or self-funded benefit plan in the payment of a claim, rather than engaging in strictly ministerial acts, is investigating and adjusting claims within the meaning of Insurance Law § 2101(g)(1). See Opinion of General Counsel No. 07-10-09 (October 23, 2007); Opinion of Office of General Counsel No. 01-06-36 (June 29, 2001). Tasks such as data entry and data processing are generally considered ministerial in nature, and do not require licensing, because they are not discretionary acts that are performed by the person or entity handling the “investigating and adjusting of claims.”
The inquirer asserts that ABC does not exercise any discretion but simply follows guidelines provided by an insurer or self-funded benefit plan, but based upon the facts presented, it is clear that ABC does exercise discretion. Indeed, the summary that is typically provided to persons covered under the plan or policy does not ordinarily setout specific guidance to enable a third party, such as ABC, to determine without any exercise of discretion whether a particular claim should be paid or not. Moreover, Medical Affairs investigates claims that may be cosmetic, experimental or investigational using clinical guidelines and other medical literature to determine whether to send any particular claim to a utilization review company for a medically necessity determination, or whether to pay the claim.
Insurance Law § 2102 states, “No person, firm, association or corporation shall act as an insurance producer or insurance adjuster in this state without having authority to do so by virtue of a license issued and in force pursuant to the provisions of this chapter.” Thus, both the company and any of its employees engaged in adjusting must be licensed as independent adjusters in order to adjust claims in this State for any insurer. Further, the fact that the company is located outside of New York State is irrelevant if the company is adjusting claims, whether by mail, telephone or other means of communication, and the insured or other claimant is situated in New York. See Opinion of Office of General Counsel No. 06-11-01 (November 2, 2006).
Both Article 49 of the Insurance Law, which governs utilization review for insurers (except HMOs), and Article 49 of the Public Health Law, which governs utilization review for HMOs and all other entities, are relevant to the inquiry. Insurance Law § 4900(h) defines “utilization review” as follows:
[T]he review to determine whether health care services that have been provided, are being provided or are proposed to be provided to a patient, whether undertaken prior to, concurrent with or subsequent to the delivery of such services are medically necessary.
Public Health Law §4900(8) sets forth an identical definition.
Insurance Law § 4900(i) defines, in relevant part, a “utilization review agent” as follows:
[A]ny insurer subject to article thirty-two [pertaining to commercial insurers] or forty-three [pertaining to not-for-profit insurers] of this chapter . . . performing utilization review and any independent utilization review agent performing utilization review under contract with such insurer.
Public Health Law § 4900(9) defines the same term as follows:
[A]ny company, organization or other entity performing utilization review, except: (a) an agency of the federal government; (b) an agent acting on behalf of the federal government, but only to the extent that the agent is providing services to the federal government; (c) an agent acting on behalf of the state and local government for services provided pursuant to title XIX of the federal social security act [i.e. Medicaid]; (d) a hospital's internal quality assurance program except if associated with a health care financing mechanism; or (e) any insurer subject to article thirty-two or forty-three of the insurance law and any independent utilization review agent performing utilization review under a contract with such insurer, which shall be subject to article forty-nine of the insurance law.
Based upon the inquirer’s representations, ABC would be a utilization review agent, as defined in Insurance Law § 4900(i) and Public Health Law § 4900(9), because it investigates any claim that it believes may not be medically necessary to decide whether to pay the claim as medically necessary or to send the claim to another entity for further medical necessity review. Therefore, ABC would have to comply with the requirements in Article 49 of the Insurance Law and Public Health Law, respectively.
Both Insurance Law § 4901 and Public Health Law § 4901 require utilization review agents to submit reports to the Insurance Department or New York State Department of Health, respectively. Information about the materials that must be submitted for registration as a utilization review agent in accordance with Public Health Law § 4901 should be obtained from the Health Department, and information about the materials that must be submitted for compliance with Insurance Law § 4901 should be obtained from the Health Bureau of the Insurance Department.
For further information you may contact Senior Attorney Brenda Gibbs at the Albany Office.